Goldman Sachs On Italy: "What's Next"

Some much needed clarity from the people who run Europe's printers. And, just as in the case of Credit Suisse, Goldman is desperately pushing for Italy to avoid precisely the outcome that Berlusconi has said is coming, namely early elections: "These could be held in mid-January at the earliest, although they would most likely be postponed until the Spring amid market turmoil. This would represent the worst scenario for markets, in our view. Since President Napolitano is aware of this, he will probably try to resist dissolving Parliament at this juncture. Also, most centrist parties would want to change the electoral law before a new vote takes place. All these scenarios will take some time to play out, a couple of weeks at least. In the meantime, the higher priced Italian government bonds will continue to be sold, as gradually higher margin requirements are applied. On our central case, intermediate to long-end bonds should continue to be supported relative to AAA-rated securities by the ECB."

From Goldman Sachs:

Italy - What's Next

After seeing his parliamentary majority decline further in a routine vote earlier today, Italian PM Berlusconi offered to resign once Parliament approves new austerity measures, possibly towards the end of next week. We see three possible outcomes at this delicate stage, with different implications for the BTP market and Italian risk premium more broadly:

Most likely scenario: In the coming weeks, the current centre-right coalition of the Northern League and PdL moves to rally round another candidate who can gain wider acceptance domestically and internationally. In order to broaden its support, the new government may reach out to smaller centrist parties which can advance their own political agenda.

A centre-right executive backed by a broader coalition and committed to implementing the ‘troika’s' economic platform could eventually stabilize markets. But the newly appointed Cabinet would need to prove itself first, and the protracted uncertainty would weigh on economic growth. Furthermore, reforming the pension system could meet resistance from the Northern League. Still, it would be hard for the ECB and Italy’s EMU peers not to stand by a new Italian government genuinely trying to pursue reforms. Under this scenario, thanks to the ECB’s interventions, we would expect BTPs to remain capped at around current levels (400-450bp) over the average of Germany, France and the Netherlands until measures are gradually approved.

Second most likely scenario: The centrist parties ultimately turn down the offer to join a broader coalition. In this case, more MPs from Berlusconi’s PdL party could join forces with formations at the centre of the political spectrum. This could pave the way for a government of national unity of sorts, led by a highly reputable ‘outsider’. Like during the crisis of the early 1990s, the advantage of such a ‘technocrat’ government is that it would be sworn in after some ‘initial contracting’ on its programme (economic reforms agreed with the ‘troika’, plus a new electoral law), which should lower the implementation risk. A technocrat government could use its credibility to introduce more growth enhancing measures that would pay off further down the road. Lastly, it could focus on improving governance (fiscal rules in the constitution, a smaller public sector, etc).

We view this as the most market-friendly outcome, as it would lead over time to a decline in sovereign spreads and in Italy’s risk premium more broadly. The front-end would re-price more than intermediate- and long-term maturity bonds because investors would likely take advantage of the rally to reduce exposure at higher prices. Nevertheless, we would expect BTPs to fall to around 350bp over Bunds in fairly short order.

Least likely scenarios: After Berlusconi’s resignation, general elections are called. These could be held in mid-January at the earliest, although they would most likely be postponed until the Spring amid market turmoil.

This would represent the worst scenario for markets, in our view. Since President Napolitano is aware of this, he will probably try to resist dissolving Parliament at this juncture. Also, most centrist parties would want to change the electoral law before a new vote takes place.

All these scenarios will take some time to play out, a couple of weeks at least. In the meantime, the higher priced Italian government bonds will continue to be sold, as gradually higher margin requirements are applied. On our central case, intermediate to long-end bonds should continue to be supported relative to AAA-rated securities by the ECB.

In conclusion, we are most probably approaching the highs in Italian yields (currently around 500bp over German Bunds in the bellwether 10-yr sector, and 600bp in 2-yr maturities), but a volatile and unsettled market remains our base case until Italy’s sovereign creditors can be reassured that long-awaited structural reforms to lift the country’s growth rate will be put in place.

There's a massive shit-low that's spent the last decade forming above the shit-riddled, steamy financial waters beneath the global financial system. Yes -- the conditions are ripe for a Category-11 Shit Hurricane. It is now coming to shore

(Don't tell me the scale "only goes to 5". This one goes to 11. And not because we're nearing 11/11/11... although that comes into play.)

I am at work, so I can't dig up that trailer park tv show with the drunk talking about shit-pressure from the shit storm and the goofy guy in coke bottle glasses is freaking out ... so I will defer to someone who can.

Part of the Illuminati religion in addition to Lucifer worship and you believing yourself to be a god, is a belief in "sacred" numbers. 3, 9, 11, 13, 33, 666 for example are believed to have special power. There are sacred numbers hidden in some of the Illuminati controlled companies logos (see the three elevens in Bank of America's logo) The modern illuminati religion is actually a patchwork of several different ancient religions. One of those is Pythagoreanism http://en.wikipedia.org/wiki/Pythagoreanism. That's where the numbers/mathematics have mystical meanings idea comes from.

They are devil worshipers after all, so they save the real evil events for dates or locations that correspond to mystical numbers. 11-11-11 could be one of those dates. But we'll just have to wait and see, only they know what they're going to do and when. That's the advantage of running the world via a secret closed society.

Interesting. Thanks for the response. Have any sites that demonstrate the connection to the numbers? Three is of course a sacred number in most religions (completeness/Trinity/trimurti/divinity). Nine is 3 squared, which is common in sacred numbers. Eleven...the faithful Apostles? Or perhaps the ten emanations of God in Kabbalah plus one (God)? 13, just one and three obviously, or Christ and the Apostles/Master and Disciples. 33, 11x3 or the age of Christ. 666 needs no explanation obviously. But can you demonstrate the connection between Illuminati beliefs and a particular obsession with these numbers?

Mostly curious now, regardless of whether there's anything to 11-11-11. I always found Gematria (et al.) very interesting, as it's even quite prevalent in the Bible (the 3, 4, 7, 10, 12 scheme which fits virtually everything in there for various reasons).

The only thing that matters is a refinery has to pay $115 for a 42 gallon barrel of oil in order to make gasoline to push Italian cars and trucks and scooters around to the tune of 1.7 million bpd of consumption ($71 billion/year).

"...In the coming weeks days/hours, the current centre-right coalition of the Northern League and PdL moves to rally round another candidate who can gain wider acceptance domestically and internationally..."

Goldman the can kicking bullsh*t is coming to an end. so forget about your clued up research on a region that you know nothing about, Europe is a zombie. After Italy, Spains 10yr will blow out then portugal, the ireland again etc etc etc. it's finished that and you a-holes will get squeezed. so no running to obama this time. you will take the pain...

here is the bet silvio says a big f*ck you to you, germany france and everyone else holding his junk. he brings back the lira, sends the bond holders to the cleaners, scales back austerity and smokes a fat blunt. i don't like the guy, but over goldman and the bs from wall street. l'll take the gangstar

Berlusconi is vaguely reminiscient of Enrico Mattei. Mattei stood up to TPTB of his era and pushed hard for an independent Italy... CIA wasn't too pleased with his ambition though. I just wonder if the politician/mafia version of Mattei will have the balls to tell the Merkozy pussies to fuck off.

i just called in the bet with my bookie.....ol bunga bunga aint going nowhere. buying time to appease the markets and consolidate power. he is not g-pap.............remember g-pap is a pussy and berlusconi eats pussy. big difference in leadership.................

The reaction of Charles Krauthammer on the Greek referendum, yapping about what a good thing it was that the referendum was cancelled and how the markets dodged a bullet says it all.

They spent decades flapping their lips about people’s right to “self-determination” back when it was all about battling the Soviets. They’re ready to send troops all around the Middle East to knock off governments supposedly to free the poor oppressed Arabs.

But when democracy gets in the way of their stock portfolio and threatens bankster bailouts all bets are off, they’ll shamelessly look right into the camera and tell us what a good thing it is when it gets squashed.

We watch this shit every day, story by story, we know its all screwed but overall its a total waste of time to even pay attention. Could have gotten the same just sitting on the beach for the last 200 days.

Yup, next stop is 13,000 on the Dow, then 14,000, and so on. While I'm not certain which way the next 20% will be, the next 100% is most definately up.

Machines + Valuatrions + the Federal Reserve + Government + Value Investors + still much fear = Market's skyrockert no matter what the outcome of Europe is (which will most assuredly be a can kick for 9 months or so).

I'm no longer fighting the trend and I feel wonderful for it. You should try it. Another $$$ day. This is getting fun.

Sheepy, I'm just totally mocking the fucking market. The problem is no one questions any of these midday spectucular moves. And what really drives me apeshit is that all these moves just validate the "the stock market" is cheap shit, and that's why it's going higher, and blah fucking blah blah.

If they could print their way to 14000 they'd have done it already. The new mint always goes more into commodities than stocks. That's why I'm leaving my puts on. They can only goose the market so far before oil rips and then they have to turn the bus around and fleece everyone on the drop. Problem for them is, each time it happens they destroy a little more of the markets credibility. They've killed buy and hold and more and more people dropping out.

RE: Bruce Krasting's post today about Pensions, the only way they will ALL be bailed out is by rising EQUITY MARKETS which somewhat explains my question of Why all the hedge funds loseing money? Where does the term "hedge" fit? Stocks are the only market left, so everyone is unhedgedly long waiting for the surf to roll in, but guess what? Europe is gonna suck up all the tidewater, and the dividend stocks will all go bust with lower sales (including electricity) and FURTHERMORE! Ha, furthermore. All these stocks with huge cash balances? Which FOREIGN banks are those balances in? Are any in Europe? Probably, our biggest trading partner is EU. H.m.m.m.m.

Its easy to see why everyone's positioned for a skyrocket stock market, its the only market left! It'll be like stuffing dollar bills thru the tight end of a funnel! Its also very easy to see how this all goes DRAINO in a circular fashion, very quickly. To quote the Late Great Sir James Goldsmith, "We're riding the Merry-go-Round to Hell", 1987.

The EuroBozo Committee has us hanging at every word, yet in the case of Silvio "Resign" means "Stay On", since 2013 is beyond the end of the world's timeline.

Q: Has G-PAP quit yet? Q: Is Corzine in office detention yet at his new Treasury desk? Q: Why no DEXIA CDS payouts? Q: Who is travel agency for G20 (go long)? My head is about to explode. Bass bot a BK mortgage insurer, that's brilliant, augh. I won't even mention my stupid Q&Aw/Larry, really I won't.

This is exactly what it will take, this statement repeated by tens of thousands or hundreds of thousands. It very well may push the Dow to 14k.

But then you will have a Dow sitting back at the all time high, but this time with tens of millions unemployed or underemplyed, millions of homes in foreclosure, wages falling and prices soaring, and a bond market in total disagreement over Europe.

That's when the big guys pull the plug on stocks and drain whatever life blood ma and pa America have left. But first they need all in, as expressed here.

Remember. He 'promised' to resign 'after' reforms are past. He has a long time to tear up a lot of favors before he leaves office. This is going to get horrible--fast. Who wants Italian Bonds? Only the ECB.

Whatever is the worst for Goldman, has to be what’s best for the people. And, of course, what’s worst for Goldman is a vote by the people.

The point is, any meaningful reform cannot happen with the international banking cartel still in charge, because reform means tying their hands, making them take a haircut, or sending, in the case of Goldman and similar others, some of their key officials to prison.

Reform measures will happen only under two conditions, in my opinion :

One, the system completely collapses and representatives of the people regain their authority. Two, the collapse begins to happen – enter Stage 1 – meaning the people get enough authority to institute real reform before it all comes down.The latter is most likely in my view.

There is no way simply to tweak and twist the current world financial system with its ingrained corruption and prerogative over the issue of money and expect real change – real change is not going to happen until the Money Power, which has become the governments’ Government, has been removed.

IOW, when you see an announcement from Goldman Sachs that several of its officials need to be in prison, you’ll also see pigs flying over Wall Street.

If elections are going to be bad for the markets they should probably just stop having them. (elections that is) I want a government for the stock market by the bankers. I want the market to go up everyday even if we have to debase the currency we measure it to do it and I want to cheer with CNBC and Crammer when the bell rings. Yeah!

there is no phrase I hate more than "the markets". Note that term is never defined. I think when it is used people should say the front running hft algo's, self interested banking prop desks, and hedge funds. When you say markets it implies so much on an emotional level that just isn't true anymore.

question for the geeks here with computer power and analytical skills i don't have. so today the s and P 500 touched the 500 day moving average again. tlt (twent year treasuries) may just break below their 50 day moving average. Hasw ther ever been a case where the twnety year has been so much above it's 200 day moving average, while the stoack market is at it's 200. is this type of divergence common, and does it imply anything.

So we kinda retested the twenty year's lows again this week. something I'd have liked to see in the stock market. the twenty year traded as I'd expect, not the markets.

so gents, what the fuck? I think this is all so screwed up. any thoughts from anyone.

Time isn't buying the market manipulators a solution. It’s buying them cement shoes. And the quagmire they’re standing in is getting deeper and deeper...

IOW, you’d better hang onto your cash; the world is going to blow. Today there is more debt than money; the governments of the world are debt saturated. And that’s not counting derivatives.

There are going to be floods of bank failures; the banks aren’t solvent. When the international banking cartel gets all the cash into debt, to hold dollars may not be all that bad.IOW, when Bernanke tries every trick in the bank to get cash away from even the savers in order to force everyone to borrow-borrow-borrow, cash may be just the thing.

The stock market is just bets. And when a company goes bankrupt, all you’re left with is a bet it was going to make it. When it doesn’t, you get nothing. At least with savings and fixed income securities, even earning negative interest, you're left with some cash.

Bernanke is a pretender; pretending we’re anchoring ourselves to reality and stability.But look at the explosion in commodity prices; look at the instability of the price-level, look at the gross distortions to producers of new wealth; look at the hideous oppression of savers and small businessmen; look at the distortions in home ownership; look at the flagrant injustices from the money manipulation of markets… and, then, tell me all is well with the economy because all is well with Wall Street.

What is best for the stock market is not necessarily what's best for the country.

but a volatile and unsettled market remains our base case until Italy’s
sovereign creditors can be reassured that long-awaited structural reforms to
lift the country’s growth rate will be put in place.

Yes austerity and the EU entering recession are bound to "lift the country's growth rate". As i am bound to lose weight sitting on my ass eating burgers and fries.

What really changes if Silvio goes? We seem to have a short term magical thought-hope process going on that all can move in the right direction if he goes. It is even more magical that we are seeking potential comfort in the idea that in both Italy and Greece unelected 'technocrats' can come in and tidy up the country...how bonkers and illegitimate is this idea.

One is outraged by how Greece got to where it is and bemused by Italy...but that does not justify denying people of their democratic legitimacy.

Lets face it, at the end of the day all the cards are in the hand of Germany. What is she going to do? Because the EFSF math and structure doesn't work.

Why would elections be the worst case scenario for markets? That's a rhetorical question. Basically GS is saying the only hope for the elite is to transfer the liabilities associated with their greed-induced stupidity to the populace. Elections slow that down. The best course of action is to install some technocrat puppets to get with the program. It's time to burn this entire MF'ing travesty of a financial/political system to the ground and start fresh. Reforming it is an exercise in futility.